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EUR/USD falls on ECB corporate bond purchases speculations - Danske

FXStreet (Łódź) - Kristoffer Kjær Lomholt, analyst at Danske points out that EUR/USD weakened on Tuesday following reports of ECB considering corporate bond purchases.

Key quotes

"The EUR sold off yesterday against most major currencies and EUR/USD declined more than one figure to 1.2725 amid speculations that the ECB is considering additional easing measures by including corporate bonds in its asset purchase program."

"While any additional measures from the ECB should result in a renewed downtrend in EUR/USD, there are two reasons why this might not happen in the short term."

"First of all, it can still be questioned whether the ECB can buy enough quantities in the combined covered bond and corporate bond markets in order to achieve its soft target of a balance sheet expansion ‘towards the dimensions it used to have at the beginning of 2012’."

"Moreover, the ECB probably also has to actually deliver before the market resumes selling the EUR."
"Hence, in the short term EUR/USD might continue to range trade as mixed US data and a more dovish tone from the Fed are likely to support the market’s expectations that the Fed will increase rates in H2 15."

"However, on a three to six months’ horizon the case for a lower EUR/USD driven by relative monetary policy remains intact and we target the cross at 1.22 in 3M and 1.20 in 6M."

"We still expect any bounces in EUR/USD to stop ahead of 1.30/1.31 and would indeed consider to sell on rallies."

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